SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: DECEMBER 31, 1995
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-8101
Exact Name of Registrant as
Specified in Its Charter: DDL ELECTRONICS, INC.
State or Other Jurisdiction of IRS Employer No.: 33-0213512
Incorporation or Organization: DELAWARE
Address of Principal Executive Offices: 2151 Anchor Court
Newbury Park, CA 91320
Registrant's Telephone Number: (805) 376-2595
Former Name - Former Address and Former
Fiscal Year, if Changed Since Last Report: 7320 SW Hunziker Road, #300
Tigard, Oregon 97223-2302
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The registrant had 18,847,849 shares of Common Stock outstanding as of
February 9, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited, except June 30, 1995)
December 31, June 30,
1995 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,828,000 $ 2,917,000
Accounts receivable 3,837,000 3,600,000
Inventories 2,687,000 2,188,000
Prepaid expenses and deposits 1,274,000 171,000
Total current assets 10,626,000 8,876,000
PROPERTY, EQUIPMENT AND
IMPROVEMENTS, AT COST
Buildings and improvements 5,198,000 5,217,000
Plant equipment 9,301,000 9,486,000
Office and other equipment 1,401,000 1,268,000
15,900,000 15,971,000
Less: accumulated depreciation
and amortization (12,672,000) (12,662,000)
Property, equipment and
improvements, net 3,228,000 3,309,000
OTHER ASSETS
Total other assets 396,000 405,000
Total assets $ 14,250,000 $ 12,590,000
See accompanying Notes to Unaudited
Consolidated Financial Statements.
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
(Unaudited, except June 30, 1995)
December 31, June 30,
1995 1995
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of
long-term debt $ 280,000 $ 633,000
Short-term borrowings 1,000,000 -
Accounts payable 4,735,000 5,283,000
Accrued payroll and
employee benefits 474,000 601,000
Other accrued liabilities 2,363,000 2,387,000
Income taxes payable 761,000 -
Total current liabilities 9,613,000 8,904,000
LONG-TERM DEBT
7% Convertible Subordinated
Debentures, less current
portion 469,000 621,000
8-1/2% Convertible
Subordinated Debentures 1,580,000 1,580,000
Notes payable, capitalized
lease obligations and
other long-term debt,
less current portion 4,833,000 4,829,000
Total long-term debt 6,882,000 7,030,000
STOCKHOLDERS' DEFICIT
Common stock 166,000 161,000
Additional paid-in capital 21,480,000 20,983,000
Accumulated deficit (22,862,000) (23,598,000)
Foreign currency translation
adjustment (1,029,000) (890,000)
Total stockholders' deficit (2,245,000) (3,344,000)
Total liabilities and
stockholders' deficit $ 14,250,000 $ 12,590,000
See accompanying Notes to Unaudited
Consolidated Financial Statements.
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended
December 31,
1995 1994
SALES $ 12,221,000 $ 16,594,000
COSTS AND EXPENSES
Cost of goods sold 10,838,000 15,713,000
Administrative and selling
expenses 1,895,000 3,233,000
Restructuring charges - 1,173,000
Total costs and expenses 12,733,000 20,119,000
OPERATING LOSS (512,000) (3,525,000)
NONOPERATING INCOME (EXPENSE)
Investment income 200,000 57,000
Interest expense (229,000) (656,000)
Gain on sale of assets - 3,374,000
Other income 167,000 33,000
Nonoperating income, net 138,000 2,808,000
LOSS BEFORE INCOME TAX BENEFIT (374,000) (717,000)
BENEFIT FROM INCOME TAXES 1,110,000 -
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 736,000 (717,000)
EXTRAORDINARY ITEM
Gain on debt extinguishment - 2,441,000
NET INCOME $ 736,000 $ 1,724,000
PRIMARY EARNINGS (LOSS) PER SHARE
Income (loss) before
extraordinary item $0.04 ($0.05)
Extraordinary item - 0.16
Earnings per share $0.04 $0.11
AVERAGE NUMBER OF PRIMARY
COMMON AND COMMON SHARE
EQUIVALENTS 16,985,366 15,673,270
See accompanying Notes to Unaudited
Consolidated Financial Statements.
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
1995 1994
SALES $ 6,029,000 $ 7,654,000
COSTS AND EXPENSES
Cost of goods sold 5,372,000 7,097,000
Administrative and
selling expenses 1,031,000 1,505,000
Total costs and expenses 6,403,000 8,602,000
OPERATING LOSS (374,000) (948,000)
NONOPERATING INCOME (EXPENSE)
Investment income 73,000 35,000
Interest expense (114,000) (316,000)
Gain on sale of assets - 3,374,000
Other income 67,000 -
Nonoperating income, net 26,000 3,093,000
INCOME (LOSS) BEFORE
INCOME TAXES (348,000) 2,145,000
INCOME TAXES - -
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (348,000) 2,145,000
EXTRAORDINARY ITEM
Gain on debt extinguishment - 2,441,000
NET INCOME (LOSS) $ (348,000) $ 4,586,000
PRIMARY EARNINGS (LOSS)
PER SHARE
Income (loss) before
extraordinary item ($0.02) $0.13
Extraordinary item - 0.15
Earnings (loss) per share ($0.02) $0.28
AVERAGE NUMBER OF PRIMARY COMMON
AND COMMON SHARE EQUIVALENTS 17,131,125 15,966,408
See accompanying Notes to Unaudited
Consolidated Financial Statements.
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31,
1995 1994
Cash flows from operating activities:
Net income $ 736,000 $ 1,724,000
Adjustments to reconcile net income
to net cash provided (used) by
operating activities -
Depreciation and amortization 382,000 887,000
Gain on debt extinguishment - (2,348,000)
Gain on sale of property and
other assets - (3,377,000)
Net (increase) decrease in
operating working capital (755,000) 2,392,000
Decrease in deposits and
other assets 7,000 2,000
Benefit of noncapital grants (151,000) -
Net cash provided (used)
by operating activities 219,000 (720,000)
Cash flows from investing activities:
Capital expenditures (380,000) (146,000)
Proceeds from disposition of
capital assets - 9,303,000
Net cash provided (used) by
investing activities (380,000) 9,157,000
Cash flows from financing activities:
Proceeds from long-term debt 80,000 119,000
Reductions of long-term debt (488,000) (10,228,000)
Proceeds from issuance
of common stock - 980,000
Proceeds from stock option
exercise 377,000 9,000
Net proceeds from exercise
of stock warrants 21,000 -
Proceeds from government grants 139,000 192,000
Net cash provided (used)
by financing activities 129,000 (8,928,000)
Effect of exchange rate
changes on cash (57,000) (3,000)
Decrease in cash and cash
equivalents (89,000) (494,000)
Cash and cash equivalents at
beginning of period 2,917,000 2,540,000
Cash and cash equivalents at
end of period $ 2,828,000 $ 2,046,000
See accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
In the opinion of the Company's management, the accompanying
consolidated financial statements, which have not been audited by
independent accountants (except for the balance sheet as of June 30,
1995), reflect all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's financial position at December
31, 1995 and June 30, 1995, the results of operations for the three and
six month periods ended December 31, 1995 and 1994, and the cash flows
for the six months ended December 31, 1995 and 1994.
The Company uses a 52-53 week fiscal year ending on the Friday closest
to June 30. In the accompanying interim consolidated financial
statements, the interim period end for both years is shown as December
31 for clarity of presentation. The actual periods ended on December
29, 1995 and December 30, 1994. Certain notes and other information are
condensed or omitted from the interim financial statements presented in
this Quarterly Report on Form 10-Q. Therefore, these financial
statements should be read in conjunction with the Company's 1995 Annual
Report to Stockholders as filed with the Securities and Exchange
Commission on or about September 30, 1995.
NOTE 2 - INVENTORIES
Inventories are comprised of the following:
December 31, June 30,
1995 1995
Raw materials $2,011,000 $1,634,000
Work in process 846,000 710,000
Less reserves (170,000) (156,000)
$2,687,000 $2,188,000
NOTE 3 - FINANCING ARRANGEMENTS
Subordinated debt and stock purchase warrants:
The Company carries previously issued 7% and 8-1/2% Convertible
Subordinated Debentures ("CSDs"). In fiscal 1993, the Company exchanged
a portion of the CSDs for stock and common stock purchase warrants. Of
the 223,500 warrants outstanding at September 30, 1995, 15,000 warrants
were exercised during December 1995 at $1.42 per share, and the
remaining 208,500 warrants were effectively exercised on December 29,
1995 at $1.42 per share. However, as the Company received the proceeds
from the exercise of the 208,500 warrants in January 1996, the issuance
of stock and the receipt of proceeds were recorded in January 1996. The
Company may effect similar exchanges with holders of the remaining
outstanding CSDs in the future.
<PAGE>
Bank Credit Agreement:
In December 1995, the Company entered into an agreement with Ulster Bank
Group which provides for multiple credit facilities for its Northern
Ireland operations. This agreement includes a working capital line of
credit of 500,000 pounds sterling (approximately $750,000), and provides
for interest on borrowings at 1-1/2% over the Bank's base rate. The
credit facilities are available to the Company until November 30, 1996,
and are subject to renewal thereafter.
Bridge notes payable:
On November 10, 1995, the Company issued 10% Senior Bridge Notes in the
aggregate principal amount of $1,000,000 to fund the down payment in
connection with the acquisition of SMTEK, Inc., which purchase was
consummated on January 12, 1996. See Note 6 below for additional details
concerning this acquisition. The proceeds from the 10% Senior Bridge
Notes were deposited into an escrow account, pending completion of the
acquisition. The escrow deposit and the 10% Senior Bridge Notes, both
in the amount of $1,000,000, are included in Prepaid Expenses and
Deposits and in Short-term Borrowings, respectively, in the accompanying
consolidated balance sheet as of December 31, 1995.
NOTE 4 - INFORMATION RELATING TO STATEMENT OF CASH FLOWS
"Net cash used by operating activities" includes cash payments for
interest as follows:
Six months ended
December 31,
1995 1994
Interest paid $ 225,000 $ 656,000
"Net (increase) decrease in operating working capital" is comprised of
the following:
Six months ended
December 31,
1995 1994
(Increase) decrease in
accounts receivable $ (425,000) $ 602,000
(Increase) decrease in
inventories (561,000) 2,411,000
Increase in prepaid expenses (956,000) (94,000)
Decrease in accounts payable (441,000) (83,000)
Decrease in accrued payroll
and employee benefits (115,000) (313,000)
Increase (decrease) in other
liabilities 1,743,000 (131,000)
Net (increase) decrease in
operating working capital $ (755,000) $2,392,000
Changes in operating working capital accounts may not equal differences
derived by comparing balance sheet accounts due to fluctuations in the
exchange rate between reported balance sheet dates.
<PAGE>
Supplemental schedule of noncash investing and financing activities:
Six months ended
December 31,
1995 1994
Capital expenditures financed by
lease obligations $ 47,000 $ 54,000
7% Convertible Subordinated
Debentures converted to equity $104,000 $ 20,000
NOTE 5 - PRO FORMA FINANCIAL INFORMATION:
Following are the Company's restated pro forma consolidated operating
results for the three and six month periods ended December 31, 1994,
excluding results of operations for the Company's Aeroscientific Corp.
and A.J. Electronics, Inc. subsidiaries, and excluding any gain from
sale of these subsidiaries' assets, as compared with actual operating
results for the three and six month periods ended December 31, 1995 (in
thousands except per share amounts):
3 Mos. ended Dec. 31, 6 Mos. ended Dec. 31,
1995 1994 1995 1994
Sales $ 6,029 $ 4,313 $12,221 $ 7,829
Total operating costs 6,403 4,545 12,733 8,705
Operating loss (374) (232) (512) (876)
Nonoperating income
(expense), net 26 (210) 138 (389)
Loss before income
tax benefit (348) (442) (374) (1,265)
Benefit from income taxes - - 1,110 -
Income (loss) before
extraordinary item (348) (442) 736 (1,265)
Extraordinary item - gain
on debt extinguishment - 2,441 - 2,441
Net income (loss) $ (348) $ 1,999 $ 736 $ 1,176
Earnings (loss) per share:
Income (loss) before
extraordinary item ($0.02) ($0.03) $0.04 ($0.08)
Extraordinary item - 0.15 - 0.16
($0.02) $0.12 $0.04 $0.08
<PAGE>
NOTE 6 - SUBSEQUENT EVENT:
Effective January 12, 1996, the Company acquired 100% of the capital
stock of SMTEK, Inc., an electronics contract manufacturer, for $6.8
million in cash and 1,000,000 unregistered shares of the Company's
common stock.
The acquisition of SMTEK was financed by short-term bridge loans
totaling $7.0 million, comprised of $1.0 million in aggregate principal
amount of 10% Senior Bridge Notes dated November 10, 1995 and $6.0
million in aggregate principal amount of unsecured loans bearing
interest at 10% that were advanced to the Company by an investment
banking firm on January 5 and 12, 1996. The Company is currently working
to arrange longer term financing through the issuance and private
placement of convertible debt and/or equity securities, the proceeds of
which would be used to retire the $7.0 million in bridge loans. However,
no assurance can be given that the Company will be successful in
arranging financing to retire the bridge loans.
Reference is made to the Company's Form 8-K filed with the Securities
and Exchange Commission on January 29, 1996 for additional details of
this transaction. The historical financial statements of SMTEK and the
pro forma financial information required by SEC regulations will be
filed as an amendment to the Form 8-K on or before March 27, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DEVELOPMENT OF THE BUSINESS
The Company is an independent provider of electronic contract
manufacturing ("ECM") services and a fabricator of printed circuit
boards ("PCBs")for use primarily in the computer, communications, and
instrumentation industries. The Company provides ECM services for
manufacturers of electronic equipment and fabricates multilayer PCBs at
its operations in Northern Ireland, primarily for customers in Europe.
The Company entered the ECM business by acquiring its domestic ECM
operations in 1985 and by organizing its European ECM operations in
1990. Since 1985, the Company has made substantial capital expenditures
in its Northern Ireland ECM and PCB fabrication facilities. In fiscal
1995, the Company liquidated or sold all assets associated with its PCB
and ECM operations in the United States, which essentially eliminated
its U.S.-based operations.
Effective January 12, 1996, as the first step toward reestablishing a
domestic presence in the electronic interconnect industry, the Company
acquired SMTEK, Inc., an electronics contract manufacturer. In
conjunction with this acquisition, Gregory L. Horton, SMTEK's Chief
Executive Officer and President, was appointed Chief Executive Officer
and President of the Company. In addition, the Company's principal
corporate office was relocated from Tigard, Oregon to SMTEK's corporate
office in Newbury Park, California. See further discussion of this
acquisition under "Recent Developments" below.
<PAGE>
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1995, AND 1994
Consolidated sales for the three and six months ended December 31, 1995
were $6,029,000 and $12,221,000, respectively, compared to $7,654,000
and $16,594,000 for the same periods in the previous fiscal year.
Included in prior year's sales are revenues from the Company's former
U.S. ECM operation, A.J. Electronics, Inc. ("A.J."), and Printed Circuit
Board ("PCB") operation, Aeroscientific Corp. ("Aero"). A.J.'s
operations were discontinued and ultimately liquidated in fiscal 1995,
and Aero's operating facility was sold December 30, 1994. Aero and A.J.
represented $3,341,000 and $8,765,000 of sales for the three and six
months ended December 31, 1994, respectively. Pro forma operating
results for the Company's remaining operations, excluding A.J. and Aero,
show sales increases in the three and six month periods of the current
year compared to the prior year of $1,716,000 and $4,392,000,
respectively.
Current fiscal year sales are generated from the Company's Northern
Ireland PCB and ECM operations, Irlandus Circuits, Ltd. ("Irlandus") and
DDL Electronics, Ltd. ("DDL-E"), respectively. Irlandus' sales for the
first six months of the current fiscal year increased by $280,000 to
$4,924,000 and DDL-E's sales increased nearly 130% to $7,297,000. The
Company ended fiscal 1995 with the highest backlog ever for its two
European subsidiaries. This has translated into higher sales in the
first six months of fiscal 1996. DDL-E, in particular, has seen growth
in contracts from existing customers as well as sales to new customers.
In the first six months of fiscal 1995, DDL-E sales to two of its
largest customers were substantially reduced as a result of lower demand
for these customers' products in the European market. Sales to these
two customers increased in the second half of fiscal 1995 and have
continued strong into the first half of fiscal 1996. Also, DDL-E has
added several new significant turnkey customers that have contributed to
sales growth in the first half of fiscal 1996 and have reduced the
relative volume of sales made on a consignment basis. For "turnkey"
sales, DDL-E provides all materials, labor and equipment associated with
producing the customers' products, while "consigned" sales are those in
which the customers furnish the materials and DDL-E provides only the
labor and equipment to manufacture the product.
Consolidated gross profit (sales less cost of goods sold) for the first
half of fiscal 1996 improved by $502,000 compared with the first half of
fiscal 1995. Also, the consolidated gross percentage improved from 8.4%
(on a pro forma basis without Aero and A.J.) for the first six months of
fiscal 1995 to 11.3% for the first six months of fiscal 1996. DDL-E's
gross profit improved by $384,000, but its gross profit percentage
declined from 13.3% to 11.1% due to a decrease in consignment sales and
an increase in turnkey sales volume. Also, the cost of direct materials
as a percent of turnkey sales in fiscal 1996 was higher than in fiscal
1995. An increase in the number of production employees handling the
higher sales volume and additional costs incurred for previously
deferred equipment maintenance further contributed to the decline in
DDL-E's gross profit percentage. Irlandus' gross profit improved by
$339,000 and its gross profit percentage improved from 5.1% to 11.7%.
Improved margins at Irlandus were due to improved product yields and
higher profit margins on new business. Part of this improvement in
profit margin results from Irlandus' successful effort to market to
<PAGE>
customers needing prototype PCBs, quick-turn PCBs (produced in ten days
or less) and short lead time production for PCBs.
Consolidated gross profit for the three months ended December 31, 1995
was $657,000, compared to $557,000 for the comparable period of the
prior year. Gross profit at Irlandus and DDL-E increased approximately
$40,000 and $60,000, respectively, in the current quarter compared to
the second quarter of fiscal 1995. Irlandus' gross profit percentage
improved from 8.4% to 10.0%, while DDL-E's declined from 20.6% to 12.6%
between these two quarterly periods. The lower gross profit percentage
at DDL-E was attributable to the factors cited above for the six month
periods. The consolidated gross percentage declined from 13.7% (on a pro
forma basis without Aero and A.J.) in the second quarter of fiscal 1995
to 10.9% in the second quarter of fiscal 1996, primarily due to the
decline in gross profit percentage at DDL-E.
The operating loss for the first six months of fiscal 1996 improved over
the comparable period of fiscal 1995 by $3,013,000, from a loss in
fiscal 1995 of $3,525,000 to a loss of $512,000 in fiscal 1996. On a
consolidated pro forma basis the improvement in the operating loss was
only $364,000. A substantial portion of fiscal 1995's operating costs
were attributable to accrual of restructuring charges associated with
the discontinuance of A.J.'s operations and disposal of its assets. The
restructuring charge of $1,173,000 in the first half of fiscal 1995 was
comprised of a writedown of assets to liquidation value, accrual of
expected lease termination costs and provision for operating expenses
through A.J.'s ultimate and final disposal.
The decline in net nonoperating income in the three and six month
periods ended December 31, 1994 of $3,093,000 and $2,808,000,
respectively, to $26,000 and $138,000, respectively, in the three and
six month periods ended December 31, 1995 is due principally to a
nonrecurring gain on the sale of assets of Aero and A.J. of $3,374,000
in the earlier three and six month periods. Also, the Company's
interest expense for these three and six month periods declined by
$202,000 and $427,000, respectively, from fiscal 1995 to fiscal 1996 due
to the payoff of the Company's senior debt at the end of December 1994.
For the second quarter of fiscal 1996, the loss before extraordinary
item was $348,000 or ($0.02) per share, compared to income before
extraordinary item of $2,145,000 or $0.13 per share for the second
quarter of fiscal 1995. On a pro forma basis, excluding the nonrecurring
gain on sale of assets and the operations of A.J. and Aero, the fiscal
1995 second quarter would have shown a loss before extraordinary item of
$442,000. The lower loss in the fiscal 1996 second quarter, compared to
the pro forma results for the second quarter of fiscal 1995, is due
primarily to a reduction of interest expense in fiscal 1996.
Consolidated net income for the first six months of fiscal 1996 was
$736,000 or $0.04 per share, compared to $1,724,000 or $0.11 per share
for the same period of fiscal 1995. Net income for the first half of
fiscal 1995 includes the extraordinary gain on debt extinguishment of
$2,441,000 associated with the retirement of the Company's senior debt.
Net income for the first half of fiscal 1996 includes $1,110,000 in net
tax benefits associated with application for federal tax refunds as
permitted under section 172(f) of the Internal Revenue Code. In the
aggregate the Company applied for federal tax refunds of $2,175,000, net
of costs associated with applying for such refunds. Through December
31, 1995, the Company has received $1,871,000 of net refunds plus
interest on such refunds of $106,000, and has recognized as an income
<PAGE>
tax benefit $1,110,000 net of certain expenses. Because of the
possibility that the tax returns underlying these refunds may be subject
to audit by the Internal Revenue Service and a portion of the refunds
disallowed, the Company has not yet recognized a tax benefit for the
remainder of the refunds received to date, or for the refunds still
expected to be received. Nonetheless, the Company feels that its claim
for refund and carry back of net operating losses can be substantiated
and is supported by law, and that the Company will ultimately collect
and retain a substantial portion of the refunds applied for.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity are its cash and cash
equivalents which amounted to $2,828,000 at December 31, 1995. During
the six months ended December 31, 1995, cash and cash equivalents
decreased by $89,000 due primarily to capital expenditures of $380,000
and the effect of exchange rate changes on cash of $57,000, partially
offset by cash provided from operations of $219,000 and cash provided
through financing activities of $129,000.
Components of operating working capital increased by $755,000 during the
first half of fiscal 1995, comprised of a $425,000 increase in accounts
receivable, a $561,000 increase in inventory and a $956,000 increase in
prepaid expenses and deposits, partially offset by an increase current
liabilities of $1,187,000. The increase in working capital is primarily
the result of increased sales volume at the Company's Northern Ireland
subsidiaries, which has increased working capital requirements.
In the past, the Company has successfully raised capital from private
placement of equity instruments. In December 1995, the Company finalized
a renewable one year credit facility with a European bank to provide a
working capital line of credit of 500,000 pounds sterling (approximately
$750,000) for use in financing the growth of the Company's Northern
Ireland operations. There were no borrowings outstanding under this
credit facility at December 31, 1995.
In fiscal 1993 the Company privately negotiated the exchange of a
portion of the 7% and 8-1/2% convertible subordinated debentures for
common stock and warrants of which 223,500 warrants remained unexercised
at September 30, 1995. Of these, 15,000 warrants were exercised during
December 1995 at $1.42 per share, and the remaining 208,500 warrants
were effectively exercised on December 29, 1995 at $1.42 per share.
However, as the Company did not receive the proceeds from the exercise
of the 208,500 warrants until January 1996, the issuance of stock and
the $296,000 proceeds therefrom have been recorded in January 1996. The
Company also has outstanding warrants to purchase 100,000 shares of
common stock at an exercise price of $1.31 until May 24, 1997.
The achievement of continued operating profitability is the most
significant internal factor to ensure the Company's long-term viability.
No assurance can be given that the Company will maintain operating
profitability, or that cash generated from non-operating sources will be
adequate to fund future cash needs. As a necessary step to ensure the
Company's increased profitability the Company is actively pursuing
strategic acquisition candidates that will help ensure growth of the
Company in the markets and industries in which it has expertise.
<PAGE>
On November 10, 1995, the Company issued 10% Senior Bridge Notes in the
aggregate principal amount of $1,000,000 to fund the down payment in
connection with the acquisition of SMTEK, Inc., which purchase was
consummated on January 12, 1996. See "Recent Developments" below for
additional details concerning this acquisition. The proceeds from the
10% Senior Bridge Notes were deposited into an escrow account, pending
completion of the acquisition. The escrow deposit and the 10% Senior
Bridge Notes, both in the amount of $1,000,000, are included in Prepaid
Expenses and Deposits and in Short-term Borrowings, respectively, in the
accompanying consolidated balance as of December 31, 1995.
Recent Developments
Effective January 12, 1996, the Company acquired SMTEK, Inc. for $6.8
million in cash and 1,000,000 shares of the Company's common stock.
SMTEK is a ten-year old electronics contract manufacturer that
specializes in surface mount technology (SMT) assembly and full
production implementation of circuit boards, from analysis and design to
complex manufacture of the product. SMTEK provides services to the
military, medical, avionics, industrial, space and high-end commercial
product markets. Areas of core competence include: (i) mechanical
thermal engineering analysis and design of printed circuit boards; (ii)
full procurement of all materials, components and up-screening; and
(iii) full in-circuit and functional testing capabilities. These areas
of specialization are integrated with a state-of-the-art turnkey
contract manufacturing capability which utilizes a high degree of
factory automation. SMTEK has approximately 125 employees and conducts
its operations in a 45,000 square foot facility located in Ventura
County, California.
The acquisition of SMTEK is expected to be an important step in the
expansion of the technical capabilities and marketing force of the
Company in Europe and the United States. The SMTEK acquisition will
bring to the Company a fully automated robotic SMT assembly operation,
mechanical engineering program managers, and a team with experience in
printed circuit board and mechanical design technology. SMTEK also has
substantial experience in the design and production of printed circuit
boards used in wireless communication products.
The acquisition has been financed by short-term bridge loans totaling
$7.0 million, comprised of $1.0 million in aggregate principal amount of
10% Senior Bridge Notes dated November 10, 1995 and $6.0 million in
aggregate principal amount of unsecured loans bearing interest at 10%
that were advanced to the Company by an investment banking firm on
January 5 and 12, 1996. The Company is currently working to arrange
longer term financing through the issuance and private placement of
convertible debt and/or equity securities, the proceeds of which would
be used to retire the $7.0 million in bridge loans. However, no
assurance can be given that the Company will be successful in arranging
financing to retire the bridge loans.
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 5. OTHER INFORMATION
Federal, state, and local provisions relating to the protection of the
environment affect the Company's printed circuit board fabrication
operations. The Company's U.S. printed circuit board plants generate
hazardous waste, some of which was treated on site and some of which was
removed from the Company's facilities and disposed of elsewhere by
arrangement with the owners or operators of disposal sites. The
Company's Aeroscientific-Anaheim subsidiary received notice from the
United States Environmental Protection Agency that it is regarded as a
potentially responsible party ("PRP") under federal environmental laws
in connection with a waste disposal Site known as the "Stringfellow
Superfund site" in Riverside County, California, which is presently
being considered by governmental authorities for remediation.
Aeroscientific has been named as a third party defendant by other PRPs
in a case brought by the United States Government concerning this site.
Aeroscientific was also named as a defendant together with a large
number of PRPs in a civil action filed by the residents and homeowners
adjacent to the Stringfellow site which was settled out of court. The
information developed during discovery and investigation thus far
indicates that Aeroscientific supplied relatively small amounts of waste
to the site as compared to the many other defendants. As part of the
currently proposed Settlement Agreement, small polluters would pay a
fixed amount plus an amount that varies based on volume of material
dumped at the site. Under these guidelines, the Company's probable
liability will be $120,000. Final settlement and timing of payment are
currently indeterminable, and no assurances can be given that any
settlement will be achieved. The Company, however, has accrued a
sufficient liability to cover the proposed settlement as of fiscal year
end 1995. Any further remedial costs or damage awards in these cases
may be significant and management believes that the Company's allocated
share of such costs or damages could have a material adverse effect on
the Company's business or financial condition. The actions are still in
the pre-trial and discovery stages and a prediction of outcome is
difficult. There is, as in the case of most environmental litigation,
the theoretical possibility of joint and several liability being imposed
upon Aeroscientific for damages which may be awarded. Total cleanup
costs for the Stringfellow site have been estimated at $600 million.
The Company's possible range of liability is indeterminable, and the
reliability and precision of estimated cleanup costs are subject to a
myriad of factors which are not currently measurable.
The Company is aware of certain chemicals that exist in the ground at
its previously leased facility in Anaheim, California. The Company has
notified the appropriate governmental agencies and is proceeding with
remediation and investigative studies regarding soil and groundwater
contamination. The Company believes that it will be required to
implement a continuing remedial program for the site, the cost of which
is currently unknown. The installation of water and soil extraction
wells was completed in August 1994. A plan for soil remediation was
completed about the same time and was submitted to regulatory
authorities. The full extent of potential ground water pollution could
not be determined given preliminary estimates. The Company retained the
<PAGE>
services of Harding Lawson and Associates in May 1995 to begin the vapor
extraction of pollutant from the soil and to perform exploratory hydro-
punch testing to determine the full extent and cost of the potential
ground water contamination. These processes are in their preliminary
stages and a complete and accurate estimate of the full and potential
costs cannot be determined at this time. The Company believes that the
resolution of these matters will require a significant cash outlay.
Initial estimates form Harding Lawson indicate that it could cost as
much as $3,000,000 to fully clean-up the site and take over ten years to
complete. The Company and Aeroscientific Corp. entered into an
agreement to share the costs of environmental remediation with the
landlord at the Anaheim facility. Under this agreement, the Company is
obligated to pay 80% of the site's total remediation costs up to
$725,000 (i.e., up to the Company's share of $580,000) with any costs
above $725,000 being shared equally between the Company and the
landlord. Through December 31, 1995, the Company has paid $328,000 as
its share of the remediation costs, and at that date the Company had an
accrued liability of $721,000 which represents its estimated share of
the future discounted remediation costs.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10.1 Agreement for Purchase of Shares dated October 6, 1995
between DDL Electronics, Inc., as buyer, and the shareholders of SMTEK
(incorporated by reference to Exhibit No. 99.1 of the Company's Form 8-K
filed with the Securities and Exchange Commission on January 29, 1996).
10.2 Employment Agreement and Letter of Understanding and
Agreement dated October 6, 1995 between DDL Electronics, Inc. and
Gregory L. Horton (incorporated by reference to Exhibit No. 99.2 of the
Company's Form 8-K filed with the Securities and Exchange Commission on
January 29, 1996).
10.3 Note Purchase Agreement dated as of November 10, 1995 among
DDL Electronics, Inc. and the various purchasers of 10% Senior Bridge
Notes (incorporated by reference to Exhibit No. 99.3 of the Company's
Form 8-K filed with the Securities and Exchange Commission on January
29, 1996).
11 Computation of Earnings Per Share
27 Financial Data Schedule (included in electronic filing)
b. Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months
ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 12, 1996 /s/ Gregory L. Horton
- --------------------------------- -------------------------------
Date Gregory L. Horton
Chief Executive Officer
and President
February 12, 1996 /s/ Richard K. Vitelle
- --------------------------------- -------------------------------
Date Richard K. Vitelle
Vice President -Finance
(Principal Financial Officer)
EXHIBIT 11
DDL ELECTRONICS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Six Months Ended
December 31
1995 1994
PRIMARY EARNINGS PER SHARE:
Income (loss) before extraordinary item $ 736,000 $ (717,000)
Extraordinary item - 2,441,000
Net income $ 736,00 $1,724,000
Weighted average number of
common shares outstanding 16,341,517 14,738,652
Assumed exercise of stock options
net of shares assumed reacquired 643,849 934,618
Average common shares and common
share equivalents 16,985,366 15,673,270
Primary earnings per share:
Income (loss) before extraordinary item $0.04 ($0.05)
Extraordinary item - .16
Earnings per share $0.04 $0.11
FULLY DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary item $ 736,000 $(717,000)
Add back net interest related to
convertible subordinated debentures 67,000 67,000
Income (loss) before extraordinary
item for fully diluted computation 803,000 (650,000)
Extraordinary item - 2,441,000
Net income for fully diluted computation $ 803,000 $1,791,000
Weighted average number of common
shares outstanding 16,341,517 14,738,652
Assumed exercise of stock options
net of shares assumed reacquired
under treasury stock method using
period end market price, if higher
than average market price 704,683 991,572
Assumed conversion of convertible
subordinated debentures 673,135 762,971
Average fully diluted shares 17,719,335 16,493,195
Fully diluted earnings per share: (1)
Income (loss) before extraordinary item $0.05 ($0.04)
Extraordinary item - .15
Earnings per share $0.05 $0.11
Note: (1) The calculated fully diluted earnings per share are
antidilutive.
<PAGE>
EXHIBIT 11
DDL ELECTRONICS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Three Months Ended
December 31
1995 1994
PRIMARY EARNINGS PER SHARE:
Income (loss) before extraordinary item $ (348,000) $ 2,145,000
Extraordinary item - 2,441,000
Net income (loss) $ (348,000) $ 4,586,000
Weighted average number of
common shares outstanding 16,485,249 15,002,325
Assumed exercise of stock options net of
shares assumed reacquired 645,876 964,083
Average common shares and common
share equivalents 17,131,125 15,966,408
Primary earnings (loss) per share:
Income (loss) before extraordinary item ($0.02) $0.13
Extraordinary item - .15
Earnings (loss) per share ($0.02) $0.28
FULLY DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary item $ (348,000) $ 2,145,000
Add back net interest related to
convertible subordinated debentures 34,000 34,000
Income (loss) before extraordinary item
for fully diluted computation (314,000) 2,179,000
Extraordinary item - 2,441,000
Net income (loss) for fully diluted
computation $ (314,000) $ 4,620,000
Weighted average number of common
shares outstanding 16,485,249 15,002,325
Assumed exercise of stock options
net of shares assumed reacquired
under treasury stock method using
period end market price, if higher
than average market price 815,175 986,457
Assumed conversion of convertible
subordinated debentures 663,992 761,048
Average fully diluted shares 17,964,416 16,749,830
Fully diluted earnings (loss) per share:
Income (loss) before extraordinary item ($0.02) $0.13
Extraordinary item - .15
Earnings (loss) per share ($0.02) .28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 2828000
<SECURITIES> 0
<RECEIVABLES> 3837000
<ALLOWANCES> 0
<INVENTORY> 2687000
<CURRENT-ASSETS> 10626000
<PP&E> 15900000
<DEPRECIATION> 12672000
<TOTAL-ASSETS> 14250000
<CURRENT-LIABILITIES> 9613000
<BONDS> 2049000
<COMMON> 166000
0
0
<OTHER-SE> (2411000)
<TOTAL-LIABILITY-AND-EQUITY> 14250000
<SALES> 12221000
<TOTAL-REVENUES> 12221000
<CGS> 10838000
<TOTAL-COSTS> 12733000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229000
<INCOME-PRETAX> (374000)
<INCOME-TAX> (1110000)
<INCOME-CONTINUING> 736000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 736000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
